10-QPeriod: Q1 FY2019

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2018

Filed July 26, 2018For Securities:MCK

Summary

McKesson Corporation reported a net loss of $138 million, or a loss of $0.68 per share, for the first quarter of fiscal year 2019, a significant decrease compared to a net income of $309 million, or $1.45 per share, in the prior year's same quarter. This decline was largely driven by a substantial $570 million goodwill impairment charge, primarily within its European Pharmaceutical Solutions segment, stemming from updated UK government reimbursement reductions and a segment reporting structure change. Additionally, restructuring and asset impairment charges of $96 million also impacted profitability. Despite the net loss, the company saw a 3% increase in total revenues, reaching $52.6 billion, driven by growth in its U.S. Pharmaceutical and Specialty Solutions segment, along with contributions from recent acquisitions. The company's gross profit margin also improved to 5.28% from 5.01% year-over-year. McKesson continues to execute its strategic initiatives, including a multi-year growth plan and ongoing share repurchases, signaling a focus on operational optimization and shareholder returns amidst ongoing market challenges.

Financial Highlights

49 data points
Beta

Revenue

$52.61B

5.3% Gross Margin

Net Income

-$138.00M

-0.3% Net Margin

EPS (Diluted)

$-0.68

Total Assets

$61.28B

Cash & Equivalents

$2.20B

Free Cash Flow

-$1.16B

Financial Statements
Beta
Revenue$52.61B
Cost of Revenue$49.83B
Gross Profit$2.78B
Operating Expenses$2.70B
Operating Income$83.00M
Net Income-$138.00M
EPS (Basic)$-0.68
EPS (Diluted)$-0.68
Shares Outstanding (Basic)202.00M
Shares Outstanding (Diluted)202.00M

Key Highlights

  • 1Reported a net loss of $138 million ($0.68/share) for Q1 FY2019, a sharp decline from a net income of $309 million ($1.45/share) in Q1 FY2018.
  • 2Total revenues increased by 3% to $52.6 billion, primarily driven by the U.S. Pharmaceutical and Specialty Solutions segment and business acquisitions.
  • 3Recorded a significant non-cash goodwill impairment charge of $570 million, impacting the European Pharmaceutical Solutions segment.
  • 4Incurred $96 million in restructuring and asset impairment charges related to a new strategic growth initiative.
  • 5Gross profit margin improved to 5.28% from 5.01% year-over-year.
  • 6Repurchased $297 million of common stock during the quarter, continuing its share repurchase program.
  • 7Declared a quarterly dividend of $0.34 per common share, with a subsequent increase to $0.39 announced.

Frequently Asked Questions

The primary drivers were a significant goodwill impairment charge of $570 million and restructuring costs of $96 million, which led to a net loss. However, revenue grew by 3% to $52.6 billion, supported by the U.S. Pharmaceutical and Specialty Solutions segment and recent acquisitions.

The goodwill impairment charge of $570 million was primarily recorded in the European Pharmaceutical Solutions segment. It was triggered by a decline in estimated future cash flows due to additional UK government reimbursement reductions announced on June 29, 2018, and adjustments related to the implementation of a new segment reporting structure.

The U.S. Pharmaceutical and Specialty Solutions segment saw a 2% revenue increase, European Pharmaceutical Solutions grew by 9% (1% excluding currency effects), Medical-Surgical Solutions increased by 11%, and Other revenues grew by 5% (1% excluding currency effects). This overall growth was partly offset by customer losses and competitive environments in some regions.

McKesson expects its available cash from operations, credit facilities, and commercial paper program to be sufficient for its capital expenditures, working capital, and other cash requirements. The company's debt-to-capital ratio increased slightly due to higher short-term borrowings, but overall liquidity is considered adequate.